GO
Loading...

Drop Coverage or Cut Hours? Big Companies Grapple With Obamacare

Wednesday, 13 Feb 2013 | 10:01 AM ET
What Obamacare Means For Business
Large and small companies are concerned with how they'll pay for requirements in the new health care law. Breaking down the key numbers behind Obamacare, with CNBC's Bertha Coombs.

For large retail and restaurant chains the big unknown in the year ahead is how much more they'll pay for health coverage. Employers with 50 or more workers who put in 30 hours a week will be required to provide health care coverage or pay a fine, under the Affordable Care Act, also called the ACA or Obamacare. But the details haven't been settled.

"We can't really calculate what it's going to be like," said John Mackey, Co-Founder and Co-CEO of Whole Foods, an outspoken critic of the Obama health reform law.

(Read More: Small Firms Weigh Big 5-0 Under Obamacare)

His grocery chain already offers health care to workers at the 30-hour threshold. But he said the company may be forced to reconsider its full-time staffing levels, if the final employer mandate rules still being crafted by the Obama administration require companies to offer costly benefit options.

"Say we're paying $3,200 a year for insurance for somebody, and the new regulations cost us $5,000 to insure somebody. If they work fewer hours, we just saved $5,000 per person," because there is no mandate to provide coverage for part-time workers, he explained.

(Read More: John Mackey: Obamacare Likely to Raise Costs)

Darden Restaurants, with 45-thousand workers, experimented with cutting back on full-time staffing at some of its restaurants last fall. After a public backlash, the chain said it would not change its staffing in 2014.

"We have always had a significant number of full-time employees and they are integral to our success," said Darden Chairman and CEO Clarence Otis in December. "The data we have collected during our test around guest satisfaction and employee engagement has only reinforced this."

RULES STILL NOT SET

"There's going to be a lot of complexity," said Neil Trautwein, Employee Benefits Policy Counsel at the National Retail Federation (NRF).

The Obama administration is expected to finalize the new rules by spring. So far, Trautwein and others have said officials have been responsive to business concerns about the details.

"We've made some progress on the question of variable workers," he said. It's likely the final rules will include a one-year look back period of an employee's weekly hours to determine full-time status, so that the mandate isn't triggered for seasonal workers. (Read More: Obamacare Is Here to Stay. Now What?)

John Mackey on Obamacare Mandate
Whole Foods founder & CEO John Mackey discusses what the new health care mandate is going to mean for his company.

Health plan requirements are expected to include more benefits than what many retailers and restaurant chains now offer hourly employees, under tighter cost-sharing rules. The employee's share of the insurance premiums can't be any more than 9.5% percent of their income.

"Brought down to its lowest level it's going to increase the cost of compensation, " Trautwein said. "That may make employment more expensive, and could serve as a drag on employment in a job-hungry economy."

THE MEDICAID COMPLICATION

Even after the rules are finalized, Patrick Doyle, Chairman and CEO of Domino's Pizza said companies will still be grappling with a lot of unknowns this fall.

"A lot of it we won't know until we go through the year end enrollment," he said, adding a big question is "how many people decide to take health care vs. going into the exchanges at the state level."

Some low-wage workers will qualify for Medicaid coverage through state health insurance exchanges, if their state takes part in the Medicaid expansion. The Supreme court let states opt out of that part of Obamacare.

A number of governors in southern states have said they will not take part in the expansion. Employers may be required to help provide coverage for workers in states that opt out of Medicaid.

PENALTIES VS. PLAN COSTS

In the end, the ACA may not stop the trend of employers dropping heath care coverage. Big firms may opt to pay the penalty of $2,000 for each full-time worker instead of funding costly plans.

In its latest budget projections, the Congressional Budget Office calculated that 7 million workers will lose employer coverage between 2013-2022, while the government will collect $13 billion more revenues from employer fines.

Buffalo Wild Wings CEO Sally Smith said she's not planning to drop health care coverage, but she will be watching worker hours more closely.

"I think we'll continue to refine our labor model," Smith said. "I think you'll see labor software coming out to help restaurateurs and retailers meet the demand for the hours, as well as what our team members need." (Read More: Will Obamacare Spark the Next Tech Boom?)

Even Obamacare critic John Mackey isn't ready to drop coverage, but says something will have to give in the benefits equation.

"That just means there's less we can pay for wages," he said. "If you take it out of one bucket, it's got to go from somewhere else.

—By Bertha Coombs; Follow her on Twitter: @coombscnbc

  Price   Change %Change
WFM
---
DRI
---
DPZ
---
BWLD
---

Featured

Contact Health Care

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More